HSBC Tax Avoidance & The Law

Feb 20, 2015

Written By Billy Sexton, Editor, AllAboutLaw.co.uk

If you’ve been keeping up with the business and commercial world in the past couple of weeks, you might have heard about HSBC being found out to be helping their clients avoid millions in tax.

Leaked files suggest that 7,000 wealthy HSBC UK clients were helped by the bank to avoid paying tax. The entire episode has created a media storm in the UK, with regular commenters on tabloid news websites receiving thousands of upvotes for their insight into the event – typically something along the lines of, “I’m a hardworking British man. I pay my taxes every month. Why is it one rule for the rich and another for the poor?”

Unfortunately for ‘hardworking British man’, he’s mistaken when it comes to his generic criticism of tax avoiders. Tax avoidance is, in fact, completely legal. Yep, you read that right. Think about it; do you have an ISA? If not, it’s highly likely that somebody you know does. ISA’s are a very simple way to minimising your tax bill – you don’t pay income tax or capital gains on the money in an ISA. This isn’t illegal. Additionally, if you’re wealthy and pay a lawyer, accountant or tax expert to exploit loopholes in the law, this isn’t necessarily illegal either.

“So, what is the issue?”, I hear you cry. Well, although tax avoidance isn’t illegal, tax evasion is. Evading tax is where you deliberately break to the rules and deceive the taxman about what your bill should be. Therefore, using offshore accounts as a means to hide cash from the authorities is illegal – and is precisely what HSBC were “aggressively marketing” to their clients. Will HSBC be prosecuted? After all, they helped customers evade tax, one by means of providing a wealthy family with a foreign credit card so they could withdraw their undeclared cash from cashpoints overseas.

The authorities need to prove that the tax evaders ‘defrauded the Crown’ but an extra complication is added in when considering the non-domiciled status of many individuals. People who claim to be non-domiciled pay income tax but can avoid other taxes, legally, if they keep their fortunes out of the country. Where an individual is domiciled depends on where their father considered home when an individual was born. Therefore, if you are domiciled to the US or France or Germany (anywhere), it’s difficult to enforce another country’s tax laws in the UK. This is enshrined in Government of India v Taylor 1955, whereby there’s a refusal to enforce another country’s tax laws. If you’re not domiciled anywhere in the world, you can avoid tax globally.

It’s highly unlikely there will be a criminal prosecution, as HSBC are more likely to settle any tax debts with a payment to HMRC if they are faced. However, the revelations have revealed legal tax loopholes like never before. Whether or not the government and opposition (Ed Balls, we’re looking at you) will follow through on their pledge to close all these loopholes, remains to be seen.

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